How to choose best performing mutual funds?


If you happen to visit any mutual funds forum you will observe that the question that is the most asked by the investors is – which are the best mutual funds to invest in? Have I picked the right mutual fund scheme? The answer to this question is not so simple and sure shot. It depends on a plethora of factors. Good returns are not the only criteria to choose a mutual fund scheme. This article will help you in choosing the best mutual funds scheme after considering all the required factors.

Let’s get started.

  1.    Performance ranking

Most people just look at the recent or long-term ranking of the mutual funds. It is suggested by our experts to have a look at the performance ranking of a scheme amongst its peers. You should check the quartile ranking of the scheme. It indicates the performance of the fund over a quarter among its peer schemes. This will help you choose the best mutual funds. You can select any of the schemes which have remained in the top quartile continuously or most of the time. If the scheme which you have invested in goes below the third quartile for a couple of quarters consecutively then this is an indication that you should exit the scheme.

  1.    Ratio analysis

Some standard quantities such as the risk and return ratio and alpha should be calculated and taken into account so as to choose the best mutual funds. Here, alpha is a quantity that measures the performance of the fund manager. A positive alpha indicates that the fund manager has generated extra over which portfolios.

  1.    Total expense ratio

A company which spends a huge amount of money on its funds will not be able to give you higher returns. Although SEBI has capped the expense ratio of the mutual funds you the funds having their expense ratios towards the lower side are the best mutual funds. The expense ratio is a very crucial parameter to judge the performance of the SIP scheme.

The criteria for the best mutual funds differ for each individual. It is not possible to tell that which scheme is suitable for which person without knowing his risk and investment horizon. Apart from the above-mentioned factors, you should also identify your goals of investment, the horizon till which you can invest and the risks profile of the investor.

We have created a simple guide to know the best mutual funds based on the above factors.

It is appropriate for you to go for equity schemes if you have long-term goals, an investment horizon of five or more years, and a higher risk appetite. Once you decide that you can be an investor in equity schemes, you should look at the following points to choose the best mutual funds.

Depending on the amount of risk an investor can tolerate they are categorized into a conservative, moderate or aggressive investor. So you can invest in the best mutual funds depending on your risk tolerance. There are combinations of various kinds of schemes available for varied customers. Fund managers can help you in knowing more about the small cap, mid cap, and large cap schemes.

Lastly, we assure you that there is no scientific way to choose the best mutual funds. Sometimes you may just earn a higher return by your intuition.

Happy Investment!


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